Managing climate change risk
Managing climate change risk
As Trustees, we believe that climate change is a potential long-term material financial risk for the Fund which could impact the Fund’s long-term investments.
Our responsible investment policy sets out our approach to addressing the risks and opportunities of climate change in more detail as well as wider ESG risks and opportunities.
We manage climate change risks and opportunities in three ways – through governance, strategy and risk management:
- We maintain a framework for assessing climate-related risks and opportunities, including clearly identifying the roles that we, the Trustees, and our advisers carry out.
- We have updated our responsible investment policy to more accurately reflect our approach to climate-related stewardship and our net zero ambition.
- Our DB Investment Committee (DBIC) and DC Committee (DCC) regularly review climate risks and opportunities. We are additionally supported by the Investment Team within Nestlé Pensions, Nestlé’s Group Pensions Unit and our advisers. The committees discuss climate-related risks and opportunities on a regular basis.
- We have taken steps to understand how climate change might affect both the DB and DC sections of the Fund. This includes an assessment of the potential impact on the Fund under several possible climate change scenarios, as well as qualitative analysis of the potential impact climate-change risks may have on different types of investments.
- Within the DB section, we continue to explore reducing the exposure to riskier and more carbon intensive assets.
- Within the DC section, we have reviewed and made changes to our equity investments, which account for most the Fund’s DC assets. The changes were made in November 2022 and mean that our equity investments now have a significantly lower carbon footprint and explicitly account for ESG considerations in the investment decision-making process. We expect this to ultimately reduce exposure to climate-related risks. We continue to review the Fund’s wider DC assets, including exposure to climate-related risks and opportunities.
- Across both the DB and DC sections, we continue to engage with our advisers and investment managers to understand, review and improve their climate practices, including both investment decision making and stewardship activities.
- We believe climate change is a material financial risk to the Fund, and we have incorporated climate risk into our Risk Management and Monitoring policy.
- We have processes in place to help us identify climate related risks and opportunities at the total Fund-level and individual portfolio-level. This includes quantitative climate scenario analysis, qualitative climate-risk and opportunity analysis and climate-related metric reporting.
- We seek to manage the Fund’s exposure to climate related risks via portfolio-specific guidelines and requirements, targeted stewardship and engagement, and in-depth reporting. We expect these processes to evolve over time.
Recognising the importance of the transition to a net zero economy, we agreed in 2022 to set an overall ambition of reaching net zero portfolio emissions by 2050.
Spotlight on ’climate scenario analysis’
Pension schemes use climate scenario analysis to estimate the impact on the scheme’s investment of different future climate scenarios. This can help identify further climate risks to be controlled, or future potential investment opportunities.
Schemes use climate scenario analysis to assess the resilience of the scheme to climate related risks and analysis.
For DB schemes the analysis is carried out on the scheme assets (investments), but also on the scheme’s liabilities.
For DC schemes, the focus is on the investments.
Schemes are required to carry out this scenario analysis every three years. The Fund last carried this out in 2021, and you can read the results of the analysis in the TCFD report for the year ending 31 December 2021.